2003 (11) TMI 16 - HC - Income Tax

Investment allowance - Assessee is doing business in export of sea foods - Assessing Officer disallowed the claim for investment allowance to the extent of Rs. 1,87,000 on the ground that the assessee is not a manufacturer - assessee is exporting prawns and shrimps after subjecting them to various treatment like deveining, peeling, etc. When raw prawns are subjected to process of deveining and peeling they did not cease to be prawns and become other distinguished commodity. There is no essential difference between raw prawns and processed prawns. They continue to be known as prawns. This being the position, we are of the view, the Tribunal is not justified in holding that the assessee is entitled to investment allowance under section 32A

Summary

Issues:
1. Whether processing of prawns amounts to production of an article?
2. Whether the assessee is entitled to investment allowance under section 32A of the Income-tax Act?

Analysis:
1. The assessee, engaged in the export of sea foods, had its claim for investment allowance disallowed by the Assessing Officer for the assessment year 1985-86, on the grounds of not being a manufacturer entitled to the grant of investment allowance. The Commissioner of Income-tax (Appeals) allowed the appeal, granting the investment allowance. The Tribunal dismissed the Department's appeal, leading to the reference of the second question to the High Court.

2. In considering the entitlement to investment allowance, the court referred to various precedents. The apex court's decision in CIT v. Kala Cartoons P. Ltd. highlighted that certain activities like purchasing, peeling, freezing, and exporting of shrimps might not amount to production or manufacture. Another Division Bench decision emphasized that processed or frozen shrimps and prawns are considered the same commodity as raw ones. The court noted that when raw prawns undergo processes like deveining and peeling, they do not transform into a different commodity but remain prawns. Referring to similar decisions, the court held that the assessee, in this case, exporting prawns and shrimps after processing, is not entitled to investment allowance under section 32A of the Income-tax Act.

3. The court concluded that the processed prawns did not fundamentally differ from raw prawns and continued to be known as prawns even after processing. Citing previous judgments, the court held that the Tribunal erred in allowing the investment allowance claim. The judgment favored the Revenue and ruled against the assessee, emphasizing the similarity between raw and processed prawns. The court directed the Appellate Tribunal to be informed of the judgment.